Marijuana Taxes to be Increased in January in California

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Marijuana Taxes to be Increased in January in California

November/21/2019

The Department of Tax and Fee Administration in California announced that come January. 1, 2020; wholesale marijuana taxes would be increased.

As from January 1, marijuana retailers would be required to pay the state of California an excise fee of 15% on a markup of 80% of the overall product supplied to the store. This is a 20% increase from the current pay, which is excise on a markup of 60%.

The increase in the tax is the department’s attempt to square up the wholesale price and the average market price paid by the end consumers.

It is the responsibility of the department to review the marijuana markup rates every six months to determine the total excise fee for retail businesses. The news of tax increase instilled a sense of panic throughout the industry because it was sudden.

The overall effects of the increase in tax on the growing marijuana industry will fall on the consumers.

Below is a detailed analysis of how the markup rates affect real costs:

The CDTFA analysts found that the markup rate of whole marijuana would be 80% as of January. This is after they analyzed the many transactions in the state’s Track and Trace system.

For instance, if a distributor sells marijuana at $50 to a retailer, the distributor would have to compute the 15% excise tax due to the retailer as follows:

Retailers wholesale cost $50.00

Markup ($50 x 80%) + $40.00

Average market price $90.00

15% excise fee (Average Market Price x 0.15)

Excise tax due $13.50

The retailer would have to pay the distributor $13.50 in marijuana excise tax, which the distributor would then remit to the state.

The department issued the farmers with an inflation-adjusted tax increase, which are flat-rate taxes imposed on dried flowers produced by permitted cultivators.

For instance:

The current rate flower per dry-weight ounce is $9.25, but as of 1stJan, the price would increase to $9.65.

The current rate for leaves per dry-weight ounce is $2.75, but it is expected to rise to $2.87 from January 1, 2020.

Fresh cannabis plant per ounce current cost is $1.29, and by January 1, it will be $1.35.

The Santa Cruz County Supervisor, John Leopold said to KSBW that the state of California should be reducing the tax levied on marijuana while creating ways to enable businesses to join the legal industry. Leopold further said that by doing this, the state would be able to generate more taxes because more people would be paying taxes. The revenue would enable the state of California to fund drug rehabs, law enforcement, and other things meant to improve the city.

In California, the black market is thriving because of the increasing consumer demand as they are avoiding the high cost of legal weed due to high tax rates. The only way the state will be able to fight illicit marijuana is by imposing reasonable taxes. Currently and probably in the foreseeable future, the black market may continue overtaking the legal market.

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